MALTA Trends and Developments Contributed by: Josef Cachia Fenech Gonzi and Cherise Abela Grech, GTG Legal
investors. This is applicable if the fund has less than 85% of its total declared assets in Malta. Another notable scheme is the Seed Investment Scheme (SiS), which is mainly targeted at angel investors in the process of investing in start-ups. Under the SiS, an individual investor who pur - chases equity in a Maltese start-up can receive a 35% tax credit on their investment, provided that they are a resident in Malta. The total tax credit can be up to EUR250,000 a year. Each start-up can raise up to EUR750,000 solely through SiS investments. This scheme, which is fairly recent, helps to reduce income tax levied on investors by a substantial portion of their start-up invest - ment, which effectively encourages high-net worth individuals to support start-ups in the early stages of their operations. It also give the entrepreneur the opportunity to tap into risk- tolerant capital, since angel investment would become more attractive and feasible. While SiS is one of the main incentives in this regard, the Malta Enterprise also offers a myriad of tax credits and grants to aid start-ups. These include: • R&D tax credits; • innovation vouchers; and • tax rebates on wages and salaries of highly- skilled employees. Moreover, start-ups partaking in research and innovation are able to access these incentives in an effort to either limit or offset certain costs which may arise. In addition, Malta’s favourable tax regime effectively means that, due to its full imputation system and refund system, start-up entrepreneurs and investors are aided upon their exit. In this regard, foreign investors are levied a low tax rate on their dividends and/or capital gains.
Furthermore, the National Strategy on AI entails that, while AI-start-ups are not heavily regulated, the jurisdiction has shown itself to be in line with the EU AI Act, aiming to hone an environment which helps AI to develop rapidly. The Corporate Tax Regime Malta’s corporate tax regime is ideal for foreign investors seeking to invest in Malta. The corpo - rate tax rate in Malta is charged at a flat rate of 35%, but through a tax refund mechanism, non- resident shareholders can apply for a significant tax refund, which often amounts to 30%, hence leading to an effective tax rate of only 5%. The quantum of the refund depends on the accounting treatment of the income of the com - pany, and, based on which, a tax refund is pro - vided. Under Maltese law, there are 5 different tax accounts under which income can be allo - cated: • the Final Tax Account; • the Immovable Property Account; Based on where the profits of the company are allocated in the respective tax account, the shareholders of the company can claim signifi - cant refunds on their payable taxes. The refund mechanism is split into three different kinds, as set out below. • 5/7 refund: this tax refund is available on taxes paid on profits deriving from pas - sive interest or royalties. Passive income is considered passive when it is not directly or indirectly derived from active trading activity. • 2/3 refund: this tax refund is available on taxes paid on profits on which double taxa - • the Foreign Income Account; • the Malta Taxed Account; and • the Untaxed Account.
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